What is Retrenchment?
Section 189 of the Labour Relations Act (“LRA”) makes provision for an employee to be dismissed based on operational requirements. Operational requirements include requirements based on the economic, technological, structural or similar needs of an employer.
A dismissal based on the employer’s operational requirements is as a result of the circumstances of the employer or business rather than an act of misconduct by the employee and it is therefore regarded as a “no fault” dismissal.
What process do you need to follow?
The LRA requires employers to follow a strict process to ensure that retrenchments are both procedurally and substantively fair. The process is also affected by the number of employees likely to be influenced.
Notification of Retrenchment Consultation
The employer should begin by notifying employees that a consultation will take place as soon as they consider retrenching. The written notification should include the disclosure of specific information relevant to the consultation as set out in section 189(3) of the LRA. Consultation
During consultation employers must consult with any person that could likely be affected by the retrenchment. The employer, the employer’s representative, the effected employees and employee’s union representative are the parties involved in consultation.
During consultation the parties should discuss and attempt to reach consensus on the following:
- The reasons for the Retrenchment
- Alternatives to dismissal (alternative employment, short time, reducing wages, reducing overtime etc.)
- The number of employees likely to be affected
- The proposed method of selection (usually last in, first out)
- Severance pay (as prescribed by the Collective Agreement)
- Assistance that the employer will be offering (e.g. Time off to attend interviews)
- The possibility of future re-employment
Opportunity for feedback
The employer must allow the affected employee’s the opportunity for feedback after the consultation and respond to any feedback received.
The employer should in all good faith keep an open mind throughout and seriously consider proposals put forward.
Notice of termination
Once the consultation process is over, the employer must notify employees who have been selected to be retrenched in writing.
The employer should pay the dismissed employees their severance pay, any outstanding leave, notice pay and their usual salary up to the date of termination.
Employers should also issue employees with all relevant documentation including their final payslip, a letter of service stating their reason for termination, and tax certificates.
What happens if you don’t follow the process correctly?
Retrenched employees may refer their dismissal to the CCMA/Bargaining Council if they feel that the process was not followed correctly. A case will be set down for Arbitration where a commissioner will look at two aspects, namely substantive fairness and procedural fairness to determine if a retrenchment was fair. Substantive fairness requires that there was a fair or valid reason for the employer to dismiss an employee. Procedural fairness requires that a fair and proper procedure was used when making a decision. The commissioner may award up to twelve months compensation of the employee’s usual remuneration for not following a fair procedure or not retrenching for a fair reason.
The importance of contacting your EOHCB representative
Retrenchments can be very difficult for employers due to the legal requirements prescribed by the LRA. We therefore recommend that you contact your EOHCB representative to assist you with the retrenchment process and to make sure that you are following a fair and correct procedure.
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